Why Subscription TV From Apple Could Shake Cable's Tree

For months now, Apple (s aapl) has been rumored to have its eyes on a new type of iTunes TV subscription offering — and we may be on the verge of seeing this potentially disruptive idea come to fruition. Multiple sources have confirmed that Apple has been pitching TV networks to support a monthly subscription service that would deliver television programs via iTunes for fees far lower than $85-plus monthly cable bills, according to Peter Kafka at All Things D. NewTeeVee and TheAppleBlog have some interesting input on the possibility today, and have weighed in on the idea before. Here’s why this could be an important new business for Apple, and a possible threat to the cable giants.

A TV subscription product actually sounds promising given that iTunes already has an established business of selling digital content delivered over the Internet — TV episodes, even! — so it’s out in front of “TV Everywhere” Hulu-like sites for paying subscribers of cable companies and other TV operators, as well as Hulu itself.

Darrell at TheAppleBlog makes the point that such a plan could not only be attractive to consumers but to networks:

It probably doesn’t look too shabby to networks, since it will help them stay relevant as more users turn away from their cable and satellite boxes and towards their computers.

Disney (s dis) may be the first content provider to explore the idea with Apple, as Kafka surmises, given Disney’s long-standing interest in working with iTunes and Steve Jobs. If Apple does indeed keep the price low on a subscription TV service, there is little doubt that many people will be willing to pay. The company could also explore with networks incentives to subscribe, such as allowing early access to widely watched shows.

For several other interesting thoughts on these possibly disruptive developments, check out Liz’s and Darrell’s posts today.

I’m not seeing it. MPAA will not allow Apple the same level of freedom the RIAA did when iTunes store started selling music. Christian pointed out the economics and no amount of detailed viewing info will overcome the bottom line.

When a single show subscription runs $20 I don’t see how $30-$40 will ever be allowed. Maybe $30-$40/month for a ‘channel’ such as HBO content if the user can prove she is a HBO subscriber similar to Comcast’s play, but there is simply no way Hollywood would allow a month’s worth of content for the retail price of two DVDs. I can’t even see this price for such classic TV fare as “A Man Called Sloan” or “The Fantastic Voyage” which nobody is clamoring for.

From Apple’s standpoint how would they be able to recoup their bandwidth costs at that rate? A few years ago there was talk about making AppleTV/iTunes a bit torrent tool for distributing content more efficiently, but I see nothing that would point in that direction, especially if the ISPs are blocking/limiting torrent traffic. TimB says this better than I can.

Finally, while other providers are beginning to allow digital distribution (PS3 store, Netflix, Epix) they are all ala carte, not all-you-care-to-eat models.

I see this as wishful thinking on Munster’s part and Munster doesn’t have a great track record of Apple predictions to begin with.

NetFlix is all you can eat. A single subscription lets you watch unlimited movies online. Granted the selection is more limited than their media delivery selection, but its still an all you can eat package.

But there is a difference between offering movies and offering TV shows. If Hulu starts to charge for content, I think they will see their viewing numbers decline rapidly. The biggest differential to the studios with an Apple subscription model will be the loss of advertising revenue, but I don’t see how Apple can offer a subscription service that includes advertising.

As an Apple TV owner and a frequent NetFlix instant watch user, the idea of on-demand TV shows is compelling to me, but I don’t see how a $30-40 subscription for a limited set of TV shows is financially attractive to me when I don’t see what it would be replacing that I could chop out of my current monthly bill. Since Cable is not a la carte, and I currently have basic cable, I could only chop out TV all together – which would include a bunch of channels that I do want to keep that are not available on iTunes.

Thanks for the correction on Netflix. I will consider that once the PS3 option becomes more clear to me.

My TV viewing habits have morphed the past 5 years. Now I only watch 1-2 programs as they are broadcast. Everything else I watch on DVD when I can watch as much as I want when I want. A subscription model for that may work for me, but I don’t see MPAA allowing that as an option at $30-$40/month for everything. If anything, I’d think they would want something more akin to Season Pass.

Some additional thoughts occurred to me. NetFlix instant watch includes quite a number of TV shows (Dexter, Lost, 30Rock, Heroes, The Tudors, Jericho to name a few). An all you can eat subscription is available for as little as $8.99, which also gets you unlimited DVD rentals (1 at a time).

I think this is what Apple needs to compete with, and the only advantage I can see Apple providing over this setup is (perhaps) breadth of content. You can make a device argument since you can’t play NetFlix on an iPod/iPhone, but then there are far more devices to connect NetFlix to a TV.

Apple may also have the global market in mind, which I don’t think NetFlix is considering.

What is clear to me now, is that I need to forget my dream of Apple ever supporting NetFlix on the Apple TV.

I’d love to see this option. Don’t forget the international markets as well. They can sell their content to many more countries then US. And in long terms the deals with local companies would come. I hate my cable, doesn’t give me flexibility I want.

If the goal was to pick off the dollars that customers currently allocated towards pay-channels; namely, HBO, Showtime, Starz, etc. it might work if for no other reason than when Tablet comes out you could have a TV anywhere offering to view same content on iPhone, Tablet, Desktop and Apple TV for one price.

I do agree with what others in the blogosphere have noted; namely, that it sets up somewhat of an ALL-or-NONE as to whether same price includes Movies/TV and Music.

@Tim–you’re right, I think Net Neutrality issues could come into play in several ways as video content delivery gets competitive over Internet pipes. I could easily see broadband providers striking non-transparent deals to throttle service, and much more.

That’s great, but doesn’t this run headfirst into the Net Neutrality issue? If it’s a raving success, then what will happen to broadband prices as the cable (and to a lesser extent the telcos) watch their content revenue drop?

What is better demographic information about the audience for every show worth to the studios? By selling content directly to consumers through iTunes, they will have a much better understanding of their audiences than Neilsen ratings could ever provide…

Personally, I will have a hard time with Hulu charging for content if they don’t offer the same flexibility as iTunes does with moving content onto other devices (iPod, iPhone, Apple TV).

I’d sign up in a heartbeat and even up my internet speeds with my provider for this because it would still be cheaper than what I pay today.

@Christian–Those are good points, but I think what Apple could make from this business could become significant very quickly. Over time, Apple’s distribution model in music has become very essential to the labels and other parts of the music infrastructure. Apple had to start somewhere with that, and with the music example already played out, the studios would have to take any paid content model that Apple introduces seriously.

The economics of this are wrong. If they get 10 million people paying $30 a month that is $3.6 billion a year. That is a ton of dough but the entire video content industry is $120 billion of which $85 billion comes from cable subscription fees and the rest from advertising. Don’t count on the studios undercutting their business model so quickly.